Scenario 5-4
Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar.
-Refer to Scenario 5-4.What would we expect to observe in the caviar market?
A) Equilibrium prices and quantities will increase.
B) Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic.
C) Total revenues to caviar firms will increase if the demand for caviar is inelastic.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

The increased border patrols and DNA testing would likely decrease the supply of caviar in the market, which could lead to an increase in equilibrium prices. However, the extent of the price increase will depend on the elasticity of demand. If demand for caviar is inelastic, firms may be able to pass on the higher costs to consumers in the form of higher prices, resulting in increased total revenues. Therefore, C is the most appropriate answer. A and B are incorrect because the changes in the caviar market would ultimately depend on the specific elasticities of supply and demand.

Scenario 5-4 Suppose the Government Is Concerned About Firms in the United